Danaher Offers Safety but Also Growth for Investors
Danaher (DHR) - Get Report is a conglomerate that averaged 10 acquisitions per year over the last decade. This aggressive strategy helped the company double its revenues from $9.5 billion in 2006 to more than $20 billion last year, but Danaher has also improved margins.
More recently, the company spun off Fortive into a separate publicly traded company.
Danaher will focus on science and technology verticals. That move should help Danaher enhance its position in its target areas and ensure solid profits. The company has smart leadership, including Steven and Mitchell Rales brothers, who founded the company in 1978 after a fishing trip. The brothers are board directors.
The company has a $55-billion market capitalization and rarely misses earnings estimates.
Danaher's share price dropped 13% earlier this year from its 2015 finish, but it has risen nearly 30% since early March and analysts foresee continued growth. It finished slightly higher in Wednesday trading.
The Rales will follow a similarly aggressive strategy with Fortive, which manufactures industrial controls and technology. Fortive is also publicly traded and finished down 1.75% on Wednesday.
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In the first quarter ending in late April, Danaher increased its 2016 profit guidance after beating analysts' earnings per share (EPS), revenue and margin estimates. Experts project Danaher to clock 7.72% EPS growth rate annually for the next half decade.
The Rales brothers and the Danaher management team have a history of skillfully allocating capital.
As evidence, Danaher has weathered recent economic volatility better than a number of other competitors. For example, Dover missed first quarter estimates and cut its 2016 guidance. Danaher is among 30 stocks to hold till 2019.
Danaher reduced its exposure to energy markets. It has controlled costs and entered high growth areas, including biopharma via a $13.8 billion acquisition of Pall in 2015.
With Pall's business, Danaher manufactures generates nearly three-fourths of its revenue in life sciences, including diagnostics and dental products.
The 20 analysts offering 12-month price targets for Danaher have a median price of $105. This represents a 30.60% upside from current levels. Its dividend yield at 0.8% isn't enticing. Danaher shares now trade at less than 16 times one-year forward earnings.
Similar technology businesses like Roper attract far higher valuations (21.93 times).
Danaher has a strong operating track record, consistent top- and bottom-line growth and a sound strategy. Its stock price has flourished even as other companies have suffered in the current uncertain climate.
This is a stock to own.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.